COMMISSIONER OF INCOME-TAX VS Mst. SHAKILA KHATOON
2005 P T D 1663
[Karachi High Court]
Before Anwar Zaheer Jamali and Syed Zawwar Hussain Jaffery, JJ
COMMISSIONER OF INCOME‑TAX
Versus
Mst. SHAKILA KHATOON
I.T.R. No. 217 of 1991, decided on /01/.
th
April, 2005. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S.111‑‑‑Penalty for concealment of income‑‑‑Limits‑‑‑Assessing Officer,. while imposing penalty, could not transgress any of the two limits i.e. maximum limit not exceeding 2-1/2 times and minimum limit not less than amount of tax avoided, if income as returned by assessee was accepted as correct income.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 111, 132(1)(b) & 135(5)‑‑‑Concealment of income by assessee‑‑ Imposition of penalty by Assessing Officer less than minimum limit prescribed by S.111 of Income Tax Ordinance, 1979‑‑‑Enhancement of such penalty‑‑Appellate Authority in exercise of power under S.132(1)(b) of the Income Tax Ordinance, 1979 could examine and correct such mistake, error or illegality‑‑‑Appellate Authority, if wanted to enhance penalty, was bound to issue notice to assessee‑‑‑Appellate Tribunal was competent to cure such illegality, mistake or error and enhance penalty within limits prescribed by S. 111 of the Ordinance either itself or remand case to Assessing Officer for fresh determination of quantum of penalty to be imposed upon assessee.
Nasrullah Awan for Applicant.
Rehan Hasan Naqvi for Respondent.
Date of hearing: 6th April, 2005.
ORDER
ANWAR ZAHEER JAMALI, J.‑‑‑The Income Tax Appellate Tribunal, Karachi has made this reference under section 136(1) of the Income Tax Ordinance, 1979 (hereinafter referred to as ‑ "the Ordinance") with the following questions of law proposed therein for the, opinion of the Court:‑‑
"(1) Whether on the facts and in the circumstances of the case learned Income Tax Appellate Tribunal was justified in upholding the order of the CIT(A) that the penalty imposed under section 111, being less than‑equivalent to the tax sought to be evaded was illegal and as such beyond the jurisdiction of the Assessing Officer.
(2) Whether or not the learned Income Tax Appellate Tribunal had the power to enhance the penalty to the required limit and instead of canceling it altogether.
2. Briefly stated the relevant facts of the case are that in respect of assessment case of the Respondent pertaining to the Assessment Years, 1975‑76, 1976‑77 and 1977‑78, the Income Tax Officer, South Zone, Karachi, finding the assessee liable for imposition of penalty under section 111 of the Income Tax. Ordinance, 1979, levied following penalties, as against the tax sought to be evaded:‑
Assessment yearPenalty leviedTax sought to he
Evaded.
1975‑76Rs.7,100Rs.7,114
1976‑77Rs.7,100Rs.7,103
1977‑78Rs.3,600Rs.3,600
3. Such decisions of the Income Tax Officer were challenged by the Respondent before the CIT(A) Karachi who by his common order, dated 3‑10‑1985 set aside the orders of the Income Tax Officer in the following terms:
"The provisions of section Ill are clear on this point. Both the limits of penalties have been prescribed by the Ordinance. Relevant portion of section 111 is reproduced below:‑‑
"‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
He or it may impose upon such person a penalty exceeding 2 1/2 times but in no case less than the amount of tax which would have been avoided if the income, as returned by such person had been accepted as the correct income."
The Income Tax Officer should have imposed penalty equal to the amount of tax but what he has done is that he has rounded off the amount of penalty and instead of adopting the penalty equal to the amount, he adopted a lesser amount without any legal sanction. In these circumstances, the amount of penalty adopted by the Income Tax Officer is not in accordance .with the provisions of law and cannot be maintained to be correct in the eye of law. Penalties imposed by the Income Tax Officer in all the years under appeal are hereby deleted. "
4. The Department challenged the order of CIT(A) in appeal before the Income Tax Appellate Tribunal, Karachi, which was disposed of by the Tribunal vide its order, dated 25‑1‑1988 holding the decision of the CIT(A) as valid and requiring no interference.
5. The relevant facts in the present case, that the penalty levied by the Income Tax Officer for three assessment years was less, at least for two years, than the tax sought to be evaded by the Respondent are not disputed. Mr. Nasrullah Awan conceding to this factual aspect of the case made reference to section 132(1)(b) of the Ordinance and vehemently contended that it was well within the powers of the Appellate Court i.e. CIT(A) by virtue of this provision of law that such error, irregularity or illegality could have been cured by enhancing the penalty imposed to match the minimum limit prescribed by law, after following due procedure of giving notice to the respondent/assessee for that purpose in the first instance or in the alternative by setting aside the orders of the Income Tax Officer and remanding the case to him for fresh adjudication of quantum of penalty in accordance with law. In this regard, he further contended that the Appellate Court committed gross illegality in not adverting to this important legal aspect of the case, which amounts to failure to exercise jurisdiction vested by law. Mr. Awan next referred to the provisions of section 135(5) of the Ordinance to show that the Tribunal also committed same mistake by not varying the orders of the CIT(Appeals) and Income Tax Officer on same lines by enhancing the penalty imposed, up to the minimum prescribed limit as per section 111 of the Ordinance, which power has been specifically conferred/elucidated in the explanation to the above provision of the Ordinance.
6. Mr. Rehan Hasan Naqvi, the learned counsel for the Respondent, in reply to the submissions of Mr. Awan, read before us the provisions of section 111 of the Ordinance and stressed upon the language of this section with specific reference to the words "in no case". He submitted that in respect of fiscal statutes the interpretation of law is to be made strictly in conformity with the well recognized principles of Interpretation of Statute, and no addition, subtraction or deletion of words could be made to the exact language of the Statute to give any particular meaning thereto: In this context, the learned counsel made reference to the observation of the Supreme Court in the case of Pakistan Textile Mill‑owners Association Karachi v. Administrator of Karachi and other (PLD 1963 Supreme Court 13), which reads as under:‑‑
"In a axing statute, as in any other statute we see no reason to depart from the general rule that words used in a statute must first be given their ordinary and natural meaning. It is only when such an ordinary meaning does not make sense that resort can be made to discovering other appropriate meanings."
7. He next made reference to the case of Messrs Hirjina and Co. (Pakistan) Ltd. Karachi v. Commissioner of Sales Tax Central, Karachi (1971 SCMR 128) wherein it was observed as follows:‑‑
"We may here observe that interpreting the taxing statute the Courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency. On the other hand the fact that the Legislature made an expressly provision for including the excise duty indicates that the unamended definition of the `sale price' did not include the provincial excise duty. "
8. The learned counsel further made reference to the case of Collector, of Customs (Appraisement) Karachi and others v. Messrs Abdul Majeed Khan and others (1977 SCMR 371). The relevant observation runs thus: ‑‑
"Moreover, in interpreting a penal or a taxing statute the Courts must look to the words of the statute and interpret them in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency, as held in Messrs Hirjina and Co. (Pakistan) Ltd. v. Commissioner of Sales Tax, Central, Karachi. Last but not the least it is also well established that penal provisions of a statute should be strictly construed and in case of any ambiguity or doubt arising from the construction, the benefit must go to the accused person, Muhammad Ali v. State Bank of Pakistan, Karachi."
9. Mr. Naqvi lastly contended that imposition of lesser penalty than the minimum specified by section 111 of the Ordinance, was an illegality which could not have been cured by the Appellate Court or the Tribunal in exercise of their respective powers under section 132(1)(b) and section 135(5) of the Ordinance.
10. In order to appreciate properly respective contentions of the learned counsel it will be advantageous to reproduce hereunder the, relevant provisions of the Ordinance, which read thus‑-
"111. Penalty for concealment of income, etc.‑‑‑(1). Where, in course of any proceedings under this Ordinance, the Deputy Commissioner, the Appellate Additional Commissioner or the Appellate Tribunal is satisfied that any person has, either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income, he or it may impose upon such person a penalty not exceeding two and a half times but in no case less than the amount of tax which would have been avoided if the income as returned by such person had been accepted as the correct income.
132. Decision in appeal.‑‑‑(1) In disposing of an appeal, the Appellate Additional Commissioner may,‑‑
(a)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(i) ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(ii) ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(b)In the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty.
135. Disposal of appeals by the Appellate Tribunal.‑‑‑(1) The Appellate Tribunal may, before disposing off any appeal, call for such particulars as it may require respecting the matters arising in the appeal or cause further enquiry to be made by the Deputy Commissioner.
(2)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(3)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(4)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(a)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(b)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑
(c)‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑''
(5)If the Appellate Tribunal is satisfied that an order which is the subject of appeal, ought to be interfered with, it shall cancel or vary the order accordingly and shall issue such consequential directions as the case may require.
Explanation.‑‑‑In the case of an order imposing a penalty, the power to vary the order shall include the power to enhance the penalty."
11. A bare reading of section 111 of the Ordinance as it existed at the relevant time, leaves no room for doubt that under this provision of law the Legislature has not only provided the maximum limit of imposing penalty, not exceeding two and a‑half‑times but has also provided the minimum limit for imposing such penalty, that in no case it should be less than the amount of tax which would have been avoided if the income as retuned by the person had been accepted as the correct income. Thus it is obvious that while imposing penalty none of the two limits could be transgressed by the Assessing Officer. To this extent, submission of Mr. Naqvi is fully justified and based on settled principles of interpretation of statute.
12. Reverting to the provisions of section 132(1)(b) it will be seen that by this provision of law the Appellate Court has been conferred with power that in case an order imposing penalty is subject‑matter of appeal before it, the Appellate Court, inter alia, could confirm, set aside or cancel such order or can enhance or reduce the penalty. In our view, in the instant case, the mistake, error or illegality whatever it may be termed, committed by the Income Tax Officer in imposing penalty which was admittedly less than the minimum limit prescribed by the statute, was thus open to examination and correction by the CIT(A) in exercise of its powers under such provision of law but this aspect of the case was totally skipped and over‑looked by the CIT(A) in its order, dated 3‑10‑1985.
13. Examining the provisions of section 135(5) of the Ordinance in the context of above noted undisputed facts, again we find that the Tribunal was also empowered and competent to exercise its jurisdiction for curing such illegality, mistake or error committed by the Income Tax Officer or CIT by adverting to such provision of law which, inter alia, specifically empowered it to enhance the penalty but unfortunately the Tribunal also did not bother to properly examine this important legal aspect of the case, while passing its order, dated 25‑1‑1988.
14. In view of the foregoing discussion, we find no force in the submissions of Mr. Naqvi that the defect/illegality committed by the Income Tax Officer in the matter of imposition of penalty was of such a nature which could not have been set right by the Appellate Court or the Tribunal in exercise of their respective powers under sections 132(b) and 135(5) of the Ordinance. However, we find force in argument of Mr. Naqvi that in case CIT(A), for the purpose of curing the illegality or defect in the order of Income Tax Officer, wanted to enhance the amount of penalty then it was incumbent upon him to have issued notice to the assessee for that purpose, but in our view it could have been possible only when the CIT(A) had bothered to examine the relevant provisions of law in this regard.
15. In view of the foregoing discussion, Question No.1 is answered in the negative while the Question No. 2 is answered in the terms that under section 135(5) of the Ordinance the ITAT had power to enhance penalty within the limits prescribed by section 111 of the Ordinance, after due opportunity of hearing to the assessee, instead of canceling the assessment order altogether or in the alternative ITAT could also remand the case to the Income Tax Officer/CIT(A) for fresh determination of the quantum of penalty, to be imposed upon the assessee under section 111 of the Ordinance.
16. This Income Tax Reference stands disposed of accordingly. A copy of this judgment under the seal of the Court and signature of the Registrar be sent to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case in conformity with this judgment.
S.A.K./C‑26/K Order accordingly.